Time running out to find solutions for global crisis, warns RBI chief

...Unresolved quickly, global problems can slam the brakes on emerging market economies (EMEs), said Dr D. Subbarao, Governor, Reserve Bank of India.....

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RBI wary of selling dollars on market volatility, deficit

The Reserve Bank of India has not intervened in a big way in the currency markets, unlike most of its emerging Asian peers, because it can ill-afford to expend a limited and fragile holding of foreign exchange reserves, RBI sources say. That reluctance to intervene is just one of the factors that sets the RBI apart. It also is currently the most hawkish in the region, waging an expensive and tough war against inflation, while most of the world frets about slowing US growth and a European debt crisis......

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Pranab takes up rupee depreciation with RBI chief

Washington, Sept 24: The Finance Minister, Mr Pranab Mukherjee, has said that intervention in the currency market would be considered at an appropriate stage and he has discussed with the Reserve Bank of India Governor, Dr D. Subbarao, the situation created by the depreciating rupee in the past few days. “I had a discussion with the RBI Governor as he is here,” Mr Mukherjee told a group of Indian reporters here. The Finance Minister and RBI Governor are here to attend the annual meetings of the Indian Monetary Fund and the World Bank. Mr Mukherjee said the Government was closely monitoring the situation and intervention in the currency market would be considered whenever necessary. “We will watch the situation for some time and as and when intervention would be required that will be considered at that stage,” Mr Mukherjee said in response to a question. To check high volatility in local currency value, central banks worldover intervene in markets through buying or selling of foreign currencies, as required. This week alone, the rupee lost 231 paise, or 4.89 per cent, against the US dollar. On Friday, rupee closed at 49.43 per dollar after falling to 49.90 per dollar. The sharp depreciation in the rupee has been mainly attributed to rising demand for dollars from foreign institutional investors (FIIs) and oil companies. Meanwhile, responding to questions on price rise, Mr Mukherjee said substantial inflationary pressure was there because of demand. “There is a demand side pressure. There is no doubt about it, because we had to resort to huge fiscal expansion from December 2008 to first quarter of 2009... stimulus package (to deal with the global financial crisis was) almost three per cent of GDP”, he said. The fiscal expansion had its impact on fiscal deficit which went as high as 6.6 per cent of the GDP from 2.5 per cent, he said. As regards food inflation, he said, it was substantial due to the constraints on the supply side. “Therefore, we have to remove those supply side constraints. We have taken some short and medium term steps,” he added. The headline inflation is nearing 10 per cent despite the Reserve Bank of India raising key policy rates 12 times since March 2010 to contain price rise.

HBL 

MODERATING DEMAND - India's rate-increase cycle nearing its end, says Gokarn

The country's central bank is close to the end of its record series of interest-rate increases as inflation will probably slow next year, Deputy Governor Subir Gokarn said. “You could say that the cycle is nearing its end,“ he said, “given the projection that inflation will start coming down and will continue to move down from December onwards.“ He declined to specify when the Reserve Bank of India (RBI) may stop raising rates. The inflation rate will drop because “oil prices do not ap- pear to be going higher“, and “we are seeing some deceleration in domestic growth because demand is being moderated“, Gokarn said in an interview in New York on Thursday. Rising interest rates have helped slow consumer demand, he said. RBI boosted India's repurchase rate for the sixth time this year on 16 September, in- creasing benchmark borrowing costs by a quarter of a percentage point to 8.25% as policy makers seek to tame the fastest inflation among the big- gest emerging markets. Indian wholesale prices rose 9.78% in August from a year earlier. “Inflation will slow in the coming months due to a combination of past rate increases and the slowdown in the global economy,“ said Dharmakirti Joshi, a Mumbai-based economist at ratings company Crisil Ltd. “The global slowdown will cool inflation but the fall in the rupee could offset the effect.“ The central bank's move last week contrasted with other central banks in the so-called Bric (Brazil, Russia, India, China) nations. Brazil unexpectedly cut its target Selic rate last month to shield the Latin American economy from a global slowdown, and Russia reduced the rate charged on repurchase loans on 14 September in a bid to bolster the amount of cash on the market amid sliding oil prices. Reserve Bank governor D. Subbarao has raised borrowing costs by a total 350 basis points since mid-March 2010, the fastest run of rate increases since the central bank was established in 1935, Bloomberg data show. “Our inflation pressures stem from a bunch of factors that are unique to our economy,“ Gokarn said. “Unlike many countries, whose growth comes significantly from export contributions, we are slightly more skewed to our domestic environment. The global downturn may “help us to manage inflation“, as commodity prices drop and demand for exports weakens, Gokarn said. India's $1.7 trillion economy expanded 7.7% in the three months ended 30 June from a year earlier, the slowest pace of growth since the last quarter of 2009. Inflation still remains a “key risk“ for India and there is a “likelihood of inflation re- maining high for the next few months“, the central bank said in a statement after announcing the last rate increase on 16 September.

Mint

We are rapidly running out of time: Subbarao

The Reserve Bank of India (RBI) Governor Duvvuri Subbarao said there is a bigger risk that the recession in the US and the sovereign debt crisis in European nations may materialise simultaneously, which can hit emerging market economies through several channels like exports, capital flows and confidence. “The messages that we heard are sharp, specific and candid. If I were asked to pick the headline message of the presentation, it is that we are rapidly running out of time, and may, therefore, be running out of solutions,” Subbarao said during his intervention in a meeting at the International Monetary Fund, ahead of the Fund-Bank meeting in Washington this weekend. He said the main impediment to an effective resolution common to both flashpoints, the US recession and Europe debt crisis, “appears to be political”. In the US, the tension is between fiscal stimulus in the immediate term and credible fiscal consolidation over the medium to long term. But in the euro area, there is a shared monetary framework, but without a shared fiscal framework. “What is standing in the way of a credible and confidence inspiring resolution of the fiscal-financial imbroglio are political compulsions,” he said. The World Bank said yesterday the euro zone debt crisis threatens the mild recovery underway in emerging European and Central Asian nations, adding main risks for parts of the region come from their exposure to banks in cash-strapped Greece and Italy. At the IMF meeting, Subbarao said the present crisis has demolished the decoupling theory that assumed emerging market economies would continue to be resilient despite downturn in advanced countries. “In an age of globalisation, the decoupling theory was never persuasive. The 2008 crisis dented its credibility and the 2011 crisis has completely demolished it.” According to the RBI governor, stability of EMEs has been hit by the crisis in advanced economies through several channels like trade, capital flows, and commodity prices, but it is the confidence channel which is the most important one. “By far, the most important channel of transmission is the confidence channel which could hurt investment and growth prospects in EMEs — when confidence is hit, even strong fundamentals do not matter,” he said. He warned the probability that all these channels become active and feed on each other is quite high. Though the crisis could affect different EMEs differently, but what is common across EMEs is that their growth momentum will be interrupted if the current global problems are not resolved quickly, according to him. Comparing the crisis of 2011 with that of 2008, Subbarao said the policy space for stimulus is much less now, as fundamentals of both advances and EMEs are different. In the years just before the 2008 crisis unfolded, advanced economies experienced steady growth and emerging economies saw accelerated growth with all round price stability, which is not the case now. “In 2008, the world responded to the crisis in coordination. There were differences, but these differences were resolved, and governments and central banks acted firmly, decisively and where required creatively. A similar perception of coordination is lacking today,” he said. Subbarao said the crisis of 2008 originated in the financial sector and transmitted to the real sector, but the rescue was by the public sector. “In 2011, it is the other way round. The crisis is originating in the public sector and hitting the financial sector, and undermining the confidence of the private sector.” In addition, in 2008, both advanced economies and emerging economies were at the same phase of the business cycle and now, they are at different phases. Subbarao concluded by saying as the world is waiting with great anxiety about the outcome of the weekend’s Fund-Bank annual meetings and the G-20 meetings, countries once again have to show the resolve of 2008 to meet those expectations.

BS

RBI Q2 policy review on 25 October

Mumbai: India's central bank on Friday said Governor D. Subbarao will announce the second quarter (Q2) review of the monetary policy for 201112 on 25 October. It will be done in a meeting with chief executives of major banks at 11 a.m in Mumbai, the Reserve Bank of India (RBI) said in a statement.

Mint

Disciplined disciple passed away......

Shri.S.K.Datta passed away on July 26, 2011 in Kolkata. He was 77 years old. He was “Core Faculty” in the Bankers Training College in the area of Industrial Relations and Personnel Management. His book “A Guide To Disciplinary Action” published by B.T.C is the Bible for all those in RBI who handled disciplinary matters. He worked for over fifteen years in the field of personnel administration in both private and public sector organizations. As a Faculty member he impressed all with his profound knowledge, great communication skills and a bubbling sense of humour. He had a rich collection of actual disciplinary cases and he used to keep the trainees spellbound. He retired as Principal of the Bankers Training College.  May his soul rest in peace. 

As reported by P.P.Ramachandran (via e-mail)

MSCB accounts: Nabard, statutory auditors differ

.......The Supreme Court has already ruled in MSCB's favour, saying it was entitled to the entire Rs 1,800 crore from the state government for the guarantee. The government would have to do it fast, as it would pave the way for the bank to get a licence from RBI by March next year.”

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‘RBI hails JK Bank for taking banking services to remotest corners’

Srinagar, Sep 23: A Khidmat centre was inaugurated at Tilwani, a remote village in Islamabad (Anantnag). The village has been ‘adopted’ for financial inclusion by the Reserve Bank of India. The centre was inaugurated on Thursday by K.K.Saraf, Regional Director, RBI in presence of Rajeshwar Rao, Banking Ombudsman and G M Sahibzada, J&K Bank Executive President.  Others present on the occasion included M S Wani, Vice President J&K Bank and D.P.Sharma, Officer-in-charge RBI’s local office, DGMs of RBI G.C.Talukdar, Ramesh and Kiran Sharma.

Saraf on the occasion hailed J&K Bank for its “support and cooperation” in taking banking services to the remotest corners of the state.  “With such an exemplary cooperation from both the J&K Bank and the people of J&K, I believe we can achieve the target of hundred per cent financial inclusion in the state,” he said. Sahibzada said, “J&K Bank is committed to take banking facilities to everyone in the state, irrespective of their economic standing, educational status and geographical location.” “Our products and technology-enabled services shall follow them wherever they are, both directly, through our network of branches and ATMs and indirectly through the innovative model of massive Khidmat Centre network.” Emphasizing on the role of Khidmat Centres towards taking financial inclusion programme further, Sahibzada said, “The centres have the potential to become centres of positive economic change. They are close to rural population and can change the state’s economic landscape”. “The latest in the basket of services of Khidmat Services is a small but wonderful Point-of-Transaction (PoT) machine. People living in remote villages like Tailwani will have to just visit the branch once – to open the account. Later, Khidmat Centres, which are easily accessible to them, being one for every six villages, will provide them all the requisite banking facilities like cash deposits, withdrawals and even loans through swiping of smart Cards through these high-tech PoT machines,” he added.

Greater Kashmir

Usha Thorat on MRPL board

Mangalore Refinery and Petrochemicals Ltd has informed the BSE that Mrs Usha Thorat, former Deputy Governor of Reserve Bank of India, has been nominated by Oil and Natural Gas Corporation, the holding company, on the board of MRPL as an independent director with immediate effect. After a service of nearly four decades with the RBI, Mrs Thorat retired in November 2010 as its Deputy Governor. She was the Deputy Governor of RBI for five years. She is serving as Director of the Centre for Advanced Financial Research and Learning.

HBL

Mazumdar-Shaw, GM Rao feature on RBI board list

Mumbai: The Reserve Bank of India (RBI) will reconstitute its board of directors soon by appointing new industrialists, two people familiar with the development said. G Mallikarjuna Rao, GMR Group chairman, Kiran Mazumdar-Shaw, chairman of India’s largest biotechnology company Biocon Ltd, Anil Kakodkar, former chairman of the Atomic Energy Commission and Sunil Mittal, chairman of Bharti Airtel, India’s largest mobile telephony company by subscribers, are some of those the central bank has zeroed in on and recommended to the finance ministry, the final authority to vet the proposal. The finance ministry has cleared the appointment of Rao, a person in the finance ministry with direct knowledge of the development said, but, surprisingly, did not confirm Mittal’s appointment. A Bharti Airtel spokesperson did not respond to an email query. Mittal, known as the poster boy of Indian mobile telephony, was on the board of Standard Chartered as a non-executive director from August 2007 to July 2009. “There is nothing confirmed yet, so it would not be possible to comment on this,” a GMR spokesperson said in an email. According to the RBI Act, 1934, the tenure of the RBI board is either for four years or till the new board is appointed. “The board has completed its four-year term,” said Alpana Kilawala, RBI’s head, corporate communications. The board has 16 members, chaired by governor D Subbarao and his four deputies along with finance ministry officials and industrialists. The board now has industrialists Kumar Mangalam Birla, chairman of aluminium to cement maker Aditya Birla Group, Azim Premji, chairman of Wipro, India’s fourth largest software company by revenues, and Sanjay Labroo, managing director and chief executive, Asahi India Glass. The finance ministry is represented by R Gopalan, secretary, department of economic affairs. The RBI, being a regulator, needs to keep its finger on the market’s pulse, said Ashwin Parekh, national leader, global financial services, Ernst & Young India Private Ltd, the Indian arm of the global consulting firm. “It invites large industrialists on its board because they are large borrowers and they have their credit experiences to share, which helps in policymaking.” “Also, corporates are the first ones to know about the liquidity issues in the market,” Parekh added. The Aditya Birla Group, with interests in financial services from mutual funds to non-banking finance, is keen to start a bank. On August 29, 2011, the RBI had announced draft guidelines for fresh bank licences, stipulating a minimum capital of Rs 500 crore. Moreover, industrialists will have to create a holding company without any interest in their operating companies to start a bank. None of the other industrialists recommended by the RBI have any interest to start a bank. The board members’ appointment process starts with the apex bank recommending names selected from diverse industries to the finance ministry for its perusal. GMR Group’s chairman Rao, who held a 5% stake in the erstwhile Vysya Bank Ltd, sold his entire stake in 2006, and has no plans to enter financial services. The group, which built India’s largest greenfield airport in Hyderabad, is now reconstructing the airport in New Delhi and has interests in power generation and roads. “It is important to have people from different fields on the RBI board,” an industrialist, whose name is under consideration, said. “Until the board has representation from the industry, it is difficult to address the sector issues.” The person cannot be identified as his name is not yet confirmed. “Inviting an industrial conglomerate on the board will help the RBI understand the regulators’ actions in foreign countries,” said Parekh of E&Y. Bharti Airtel has a wide presence not just in India but also outside India and being the largest telecom service provider in the country, understands the country’s pulse, Parekh said of Mittal being considered for the board seat. “It is said that financial inclusion in the country will be driven by mobile services,” he pointed out.

FE

Nerkar no more...........

Shri Arvind Nerkar passed away on 17th September, 2011 in Mumbai. He was 71 years old at the time of his death. He was in a train bound for Goa. Shri.Nerkar had worked in DBOD and was also Faculty member in B T C. He was for a number of years Adviser to the Central Bank of Oman--to which he was initially sent by R B I on deputation. He was Dean Academic Excellence, M E T, Mumbai. He is survived by his wife and three children. We pray that his soul rests in peace.

As reported by - P.P.Ramachandran (via e-mail)

Banks in Dharwad told to set up financial literacy centres

The Reserve Bank of India (RBI) has suggested to banks in Dharwad district to have a Financial Literacy and Credit Counselling Centres (FLCC) at each Blocks. Mr R. Ramachandran, Manager, RBI- Bangalore, while reviewing the performance of banks in the district under Financial Inclusion Plan (FIP), advised the banks that just designating business correspondents (BCs) does not serve the purpose of FIP. “There should be full-fledged implementation of FIP by operation of biometric cards,” Mr Ramachandran said.

HBL

Subbarao: India is ready to help IMF to fight global crisis

Reserve Bank of India (RBI) Governor Duvvuri Subbarao said on Thursday that India is ready to extend support to the International Monetary Fund ( IMF) to overcome the global economic crisis. In his statement during the meeting of finance ministers and central bank chiefs of the BRICS ( Brazil, Russia, India, China and South Africa) nations that met at Washington, Subbarao said that all the nations of the group are ready help IMF. " BRICS countries are prepared to support the IMF in augmenting its resources, of course subject to their individual country circumstances," he said. The BRICS countries have unanimously considered providing money to the International Monetary Fund or other global financial bodies to increase their firepower for fighting financial crisis. " It is natural that when rich countries get into problems, the demand for IMF support, in terms of quantum of support, is bound to be higher, than when poorer countries or emerging economy get into problems. So, it is possible that IMF resources are starched and they might need additional support," said Subbarao. The leaders on Thursday also called the G20 nations to act swiftly and decisively to ease the euro zone debt crisis, the same way they fought the global financial crisis in 2008.

FPJ

Should for-profit companies be permitted to act as business correspondents for banks?

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.....Within the past one year, the Reserve Bank of India (RBI) has brought forth many initiatives with regard to financial inclusion and one of the most important changes is "permitting for-profit companies (corporates) to act as business correspondents for banks" with a view to enhance the cause of financial inclusioni . There are several lessons for the RBI and other stakeholders from the 2010 Indian microfinance crisis on this aspect. It is hoped that the RBI would look at these lessons and revise its decisions accordingly. .....

Wrong approach to inflation

...In accordance with widely accepted economic theory, the Reserve Bank of India has been trying to cure inflation by raising interest rates. It has done so virtually every month; unfortunately, even after nearly a dozen such exercises, inflation still persists. As Sir Francis Bacon pointed out over four hundred years ago, a theory is merely a theory; it cannot be taken as fact unless it is confirmed by experiment. In the present case, the theory that inflation can be cured by making money costlier has not worked. It is not a fact.....

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Rupee decline fails to cheer many NRKs

KOCHI: Even as the depreciation of rupee is good news for Kerala, which is largely dependent on remittances and exports, not many of the migrants from the state are able to make use of the windfall. With two major festivals, Onam and Eid, just over, most of them had already sent their savings to their relatives back home before the current slide of the rupee began. Remittances to Kerala are estimated to be equivalent of one-fifth of the state's GDP, and its migrant population is said to be around 2.1 million. The Indian currency hit a fresh two-year low of Rs 50 against the dollar on Friday, and it gained marginally after reports of RBI intervention. Nearly 80 per cent of the remittances to Kerala are described as distress remittances, which the migrants send home every month to support their families. Only those who had the capacity to hold back their savings are able to leverage on the rupee slide, and they constitute the remaining 20 per cent. Migrants from Kerala in other countries are also expected to reap harvest of the current hike in dollar value.

TOI

Rupee posts biggest weekly fall in 15 years

"Right now, the market is hungry for dollars and till the time there is significant dilution in the demand, intervention from the central bank will only cushion the rupee's fall, not reverse the trend,"...

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Volatility in financial markets likely to remain; pressures on euro seem inevitable: Barclays Capital

... But RBI Deputy Governor Subir Gokarn told a news channel that if the RBI intervenes, it would be with a "very narrow objective of smoothening what might be a very volatile market situation, nothing beyond that"......

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India warns world of 'currency war'

Indian Finance Minister Pranab Mukherjee on Thursday warned the international community that there is danger of a currency war if the ongoing economic crisis deepens........

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